Strategic Focus Areas Report

1. Strategic Focus Areas Report

2. 1.1 Shoprite Group Strategic Focus Areas • Strategy Commentary: • The Shoprite Group strategic focus areas for FY2019 remain unchanged compared to last year (FY2018), with delivery of low prices and a world-class shopping environment remaining core to all areas of the business. • Looking Forward: • The Group has six overarching critical areas of execution necessary to achieve optimal output, and that the strategic focus areas work towards achieving: • Intellectual capital – Strong brands and almost 40 years’ retailing experience • Human capital – Well-trained, committed people • Societal capital – Loyal customers and strong community support • Financial capital – A strong and healthy balance sheet • Manufactured capital – State-of-the-art infrastructure, stores and DCs • Natural capital – Environmentally sound practices that minimise environmental footprint • In order to achieve these, the Group’s strategic intent is to continue to strengthen and extend its position as the foremost FMCG retail operation on the African continent, by focusing on the six key focus areas and associated strategic objectives outlined in the table on the following slide

3. Shoprite Group Strategic Focus Areas

4. Building a Customer-First Culture • Articulated as part of its purpose is the Shoprite Group aspiration to become a global leader in customer service, putting the customer first in everything the Group does. The Group’s intention is to continue to cement the culture shift of putting customers and their unique needs first by focusing in particular on the following: • Best Price (on key items most important to shoppers) • Affordability is one of Shoprite Group’s key metrics of success and price leadership remains a focus across the business. Shoprite is invested in subsidising basic foods and offering the products most important to middle and lower-income price sensitive shoppers at the best prices, reportedly shielding customers from R2bn in price increases in FY2018. • Tenacious focus on optimal supply chain processes, operational efficiencies, integrated planning and strict cost disciplines across the divisions contributes to the Group’s ability to deliver this strategic objective. • Examples of the above in action are: • R5 and R10 deli meals in Shoprite and Usave, providing an affordable meal for financially-stretched customers (nearly 65 million R5 deli meals served) • 13,241 products cheaper than last year, with internalinflation below CPI. This has been achieved for seven consecutive years • The continuation of the Group’s bread and food subsidy campaign (over 110 million loaves of bread subsidised)

5. Building a Customer-First Culture contd. • Best Price (on key items most important to shoppers) contd. • The Group conducts two customer satisfaction surveys per year, known as Brand Health Trackers. The results are based on 1,500 respondents and are aimed at measuring customer satisfaction with price, value, quality, freshness and services. • The June 2018 survey reported that, in the words of Shoprite Group, “customers are extremely satisfied with our low prices” relative to competitors. The results of the survey are detailed below: Source: Shoprite Group Results Presentation FY2018 and Shoprite Group Annual Report FY2017

6. Building a Customer-First Culture contd. • Interaction with customers • Instilling the culture of putting customers and their unique needs first is core to all Shoprite’s employee training programmes and processes. The Shoprite Group offers extensive training opportunities, attractive incentive programmes and a range of awards programmes to further cement this focus. Examples of this in action are: • Training programmes and interventions • The Group is focused on creating an environment that offers numerous training programmes and interventions to ensure a talent and succession pipeline and a team that is trained to deliver on the promise of top customer service. A total number of 3,458,139 training hours were invested in employees in FY2018 (FY2017: 1,994,414 hours), across various training interventions, including: • 22 accredited training courses, supporting 7,833 learners • 1,500 retail related courses • Bursaries to the value of R18m awarded in FY2018 (FY2017: R16m) • e-Learning at supermarket level, delivering 2,703 e-learning kiosks and devices to all stores including all African trading countries • The Retail Varsity, focused on the development of management competencies in the operational environment • Reward systems • The Group recognises staff for providing outstanding customer service and giving customers a better shopping experience with the following recognition and reward programmes: • Super services award programme, which included approximately 180,000 staff across more than 2,300 stores in FY2018 • Customer care heroes initiative

7. Building a Customer-First Culture contd. • Interaction with customers contd. • In addition to in-store employee engagement, the Group’s engagement with customers is primarily through the following platforms: • The Brand Health Tracker survey   • Direct interaction with customers in the stores, through suggestion boxes and numerous call centres • Social media platforms, where engagement has increased notably in recent times • The Group is increasingly engaging with its customers via social media platforms, using social media as a marketing channel and customer response, retention and recovery mechanism, as well as a brand-building medium. A new digital strategy is currently being explored, to extend personalised engagement to customers

8. Building a Customer-First Culture contd. • Interaction with customers contd. • Community engagement is another key means by which the Shoprite Group connects with its customers. The Group has a well-developed social investment strategy focused on sustainable interventions with an emphasis on fighting hunger, empowering women and responding to the needs of communities: “We #ActForChange”. The value of Shoprite Group community investment sits at 2.7% of net profit after tax. • The Group has outlined the following key areas of investment: • Food Security: Tackled through feeding schemes, food gardens and food donations • Empowerment, upliftment and access to the economy: Partnering with various initiatives to support and empower women, as well as supporting smaller suppliers and growers • Job Creation: Through current and new stores, as well as skills development in order to create a pipeline for future job creation and opportunities for the unemployed • Disaster Relief: Such as food donations, transport of goods or financial aid • Community Development: Strong community relationships support mutually beneficial outcomes for community developments, as well as brand and staff loyalty Operational team focus by trading brand The Shoprite Group operational teams were restructured in FY2017 to, in the words of Pieter Engelbrecht, “provide even more focus on the customer”. This restructure further clearly positions the Checkers and Shoprite brands as serving different core shopper needs and profiles. Suppliers will need to increasingly ensure that each retail trading brand is treated distinctly in terms of ranging, packaging, and shopper marketing campaigns. Refer to the Shoprite and Checkers respective Key Focus Areas in this report, to further unpack this differentiation.

9. Building a Customer-First Culture contd. • Range informed by data analytics and customer science • Over recent years, the Shoprite Group has significantly improved its ability to respond to its customers’ ranging needs through investment into customer science and data capabilities to ensure product relevance. • The Group is adopting a far more analytical approach to assessing product ranging across regions and store formats. Increasingly informed decisions are being made regarding merchandising, range rationalisation, range gaps, and the factors driving shopper decision-making. ‘Your Customer Insight’ is a department dedicated to working with dunnhumby, to analyse the digital and transactional data in order to gain insight into customer preferences and facilitate joint category planning initiatives with suppliers. • Particular focus is on using data analytics to inform the investment into price on items that are most important to price-sensitive shoppers. • As an extension of range, the Group’s focus includes offering a complete shopping experience, appealing to the demand of increased convenience for shoppers, building customer loyalty and driving foot traffic through the store, through: • Ancillary services – offering customers a ‘one-stop shopping’ experience, including 163 MediRite pharmacy outlets and 390 LiquorShops • Value-added services – offering successful, smart and relevant additional services from Money Transfers to Bus and Flight tickets

10. Growing LSM 8 – 10 Share of Wallet • The upmarket customer has been identified by the Shoprite Group as a lucrative target market, with higher valued baskets . The Group attributes the +8.2% sales growth in Checkers in FY2018 to this focus in strategy, as well as the additional 670,000 monthly customers gained over the period (excluding Checkers Hyper). The intention is to further improve the Checkers brand offering and customer perception to grow share of upmarket spend by: • Improving fresh offering • Demand for fresh food, healthier choices, including healthy pre-prepared convenience foods is accelerating, particular in the upper-income customer segment. The Shoprite Group is responding vigorously to this trend, with fresh in Checkers reportedly growing at double the industry rate, and a reported +12% improvement in Checkers customer satisfaction in fresh. • Note: For further detail on Checkers, please refer to the Checkers SFA section

11. Growing LSM 8 – 10 Share of Wallet • Accelerating FreshX store upgrades • In targeting the higher LSM customer, Checkers is in the process of revamping stores to a new look FreshX concept which offers a ‘speciality experience inside a supermarket’. The Group has used customer-led insights to inform speciality ranges, pricing, and the way products are promoted. • To date, 13 Checkers stores have been converted to FreshX stores, with the Group reporting that higher LSM customers shopping in the revamped stores are spending more and shopping more frequently. The target is to revamp at least one third of Checkers stores in the medium term. • Note: For further detail on Checkers, please refer to the Checkers SFA section • Gearing product innovation capability • The Group’s investment in fresh and new product and store format innovation can succeed only if supported by successful investment in the following: • Sophisticated supply chain model well-suited to effective delivery in fresh, where speed to the market, and quality control are key drivers of success • Expanded food technologist team to support the roll-out of premium and gourmet food products • Launch of a Chef’s school to provide a pipeline of skills for this offering

12. Growing LSM 8 – 10 Share of Wallet contd. • Capitalising on conscious consumerism • While the majority of Shoprite Group shoppers are more focused on pricing, quality and health and wellness, there is increased market demand, particularly in the premium brands, for transparency and information in respect of provenance and ethical or health claims. The Group is increasingly responding to this expectation from its customers, focusing on the following: • Recycled material use, packaging and waste reduction, minimising carbon footprint – 103 tons of plastic was diverted from landfill by Zip Cola bottles using 25% post-consumer waste • The fully recycled and recyclable shopping bag now available in all supermarkets • Food safety, labelling and nutritional claims checked in-house, including country of origin and organic certification • Identifying sustainable practices through the supply chain • Renewable energy – generated 2,393 MWh of renewable energy in 2018

13. 3. Developing Private Label • Shoprite views private label as a means to provide customers with better choices at better value while delivering better margin for the Group. The focus is not only on key commodity price points, but also on upmarket products aligned to the Group focus of targeting the LSM 8 – 10 customer. Half of all new private label products launched in FY2018 are aimed at upmarket customers. The private label categories have reportedly outgrown store growth threefold, with SA contribution increasing from 14.6% in FY2017 to 16.2% in FY2018. • Noteworthy progress in FY2018 includes: • Development and launch of the Usave umbrella brand, Ubrand. Targeting over 300 products with a simple proposition of comparable quality to the national brand leader, but at a reduced price • Development and launch of new private label brand called Simple Truth, consisting of more than 150 products aimed at consumers seeking healthier and/or more environmentally friendly products, from gluten free to vegan to organic

14. 4. A Stronger Franchise Offer • In FY2016, the OK Franchise division came under the spotlight as a strategic growth area for the Group, giving the Group access to smaller communities. This further facilitated the Group’s full spectrum LSM reach and capitalised on the growth that was being seen in franchise / independent retail across the market. Two years on the emphasis on growing franchise remains, with focus into FY2019 on the following: • Continued rebranding of outlets / stores • OK franchise gained market share and delivered a strong trading profit growth of +12.3% in FY2018. This has been largely attributed to the rebranding programme which has included an improvement in store standards and a refreshed private label, inter alia. The brand enhancements contributed to a net gain of 30 new members over the period. The Group will continue to rebrand outlets in FY2019, and intends to continue its focus on strengthening and improving relationships with franchise stores. • Enhanced member support by leveraging Group pricing, distribution and IT infrastructure • The intention is to use the scale of the Group to provide the franchise model with its competitive advantage. Leveraging the scale of the Group should translate into: • Group pricing benefits • Improvements in stock availability and increased delivery frequency leveraging the supply chain and distribution infrastructure • IT infrastructure alignment and support with enterprise wide roll-out of the new SAP IS Retail system • Expanded and refined convenience formats (Express and forecourts) • The roll-out of OK Express (forecourt) stores received significant focus in FY2018. This growth was facilitated through: • Increasing access to private label • General Merchandise range • Money Market services • A turn-key system solution*

15. 5. Leverage African Advantage • Capitalise on current supply line infrastructure in order to continue expansion in Africa • As growth in South Africa becomes increasingly challenging, the importance and reliance on Africa as a second engine of growth is increasing every year. With over 27 years’ experience, and 475 stores across 14 rest-of-Africa countries, the Shoprite Group is Africa’s largest and most dominant formal retail player, recording 1 billion transactions in FY2018. • The Group is well positioned to benefit from the identified Africa opportunity: • Economic growth ahead of South Africa in most of the countries that Shoprite Group has a store footprint in, evident in the table below • Population growth which is expected to double to 2.4 billion people by 2051 (a direct increase in basic foods and staple products is anticipated) • Middle class forecasted to reach 1.1 billion people by 2061 • Rapid urbanisation with 25 million people moving to cities each year Source: Shoprite Group Annual Report 2018

16. 5. Leverage African Advantage • Capitalise on current supply line infrastructure in order to continue expansion in Africa • Although growth in Africa is challenging with FY2018 turnover growth at -7.0% in rand terms, the Group opened 45 new Africa stores (outside of South Africa). Southern Africa remains the region of focus, indicative in the map shown earlier. The intention is to capitalise on current supply line infrastructure, opening DCs to service stores in order to improve efficiencies, range and service to customers and stores. • The Group plans to open 30 new Non-SA stores in FY2019 (18 of which are supermarkets), including growth into Kenya, a country not yet represented by the Shoprite Group. “We remain fully committed to Africa, continue to build on the successful base we have established, and continue to believe in its vast potential.” CH Wiese, Shoprite Group Chairman

17. Strategic Footprint Expansion • The Shoprite Group’s state-of-the-art supply chain is a key competitive advantage, facilitating the Group’s ongoing strategic footprint expansion. • New stores and new formats • The Group continues its aggressive strategy to open new stores in existing supermarket formats, as well as better serve markets previously out of reach through new smaller formats. • New stores • A net 150 stores opened in FY2018 (FY2017: 240), with 132 new stores planned for FY2019 • SA supermarkets remain the core of the Shoprite Group business, contributing 74% to turnover – 88 new supermarkets are planned to June 2019 • The Group invested 13% of CAPEX on new stores in FY2018 (down from 20.3% in FY2016 and 15.3% in FY2017) • New territories / new border expansion • New African countries are being explored outside of existing African presence, facilitated through the learnings gained from the advanced supply chain outlined earlier • Shoprite has made a bid for 11 franchise stores in Botswana; Expansion into Kenya is planned for FY2019 • Shoprite continues to cautiously explore expansion beyond Africa

18. Strategic Footprint Expansion contd. • The Shoprite Group’s state-of-the-art supply chain is a key competitive advantage, facilitating the Group’s ongoing strategic footprint expansion. • New stores and new formats contd. • New formats • The UsaveeKasi modular stores, which are container-like stores of approximately 150m² – 400m², continue to increase in number. The format remains a trial and allows for quick and affordable infrastructure to reach customers in previously underserved areas • Shoprite Mini, another example of Shoprite Group’s innovative plan to better serve and reach more customers

19. Strategic Footprint Expansion contd. • Distribution capability • The Group maintains a sizeable head start in extended centralised distribution and supply chain capabilities with a fleet of 801 trucks and 1,147 trailers operating from 629,942m2 of DC space, ensuring maximum stock availability across 2,843 outlets. SPAR, the second largest FMCG retailer in terms of turnover, has 361 trucks and 406 trailers, operating 287,000m2 of DC space in Southern Africa, highlighting the scale of the Shoprite Group. • Shoprite endeavours to build strong relationships with a broad and diverse group of suppliers in order to ensure sustainable delivery of safe products at the best prices for the customer. Carbon emission reduction remains a key focus area for the Group, with a reduction in carbon emission intensity per unit revenue by -4.49%.  • Supply chain stats / performance • The fleet is owned by the Group and operates 24 hours a day, seven days a week, and travelled more than 70 million kilometres in FY2018 • The Group’s DC in Centurion, Gauteng, is the largest of its kind under one roof on the continent • Number of DCs has decreased from 33 in FY2017 to 27 in FY2018, predominantly due to the consolidation of the five Cape Town DCs outlined below • A sophisticated and detailed transport route planning and scheduling system is in place to optimise store deliveries • Fuel-efficient trucks are used

20. Strategic Footprint Expansion contd. • Distribution capability contd. • Supply chain developments / enhancements • Cilmor DC, Cape Town, opened in September 2017, with all three sections (ambient, frozen and chilled) becoming fully operational in FY2018. At 105,000m2, this DC consolidated the activities of five Cape Town DCs and improved supply efficiencies and is aiming for Green Star Accreditation • Expertise gained in South Africa will be carried through to operations in Non-SA countries with the acquisition of land for an additional DC in Angola and the Port Harport development in Nigeria • Shoprite is currently pioneering reverse logistics initiatives aimed to enhance its sustainability and environmental position, with the focus being to re-use, recycle and reduce waste to landfill. • Backhauling system – Aimed to reduce the number of supplier trucks on the road, diminish emissions, reduce transport costs for suppliers and improving lead time of products to stores. Uptake of this has grown by +47% during the reporting period and backhaul is now the third biggest “supplier” into the DCs • As part of its efforts for zero waste to landfill, the Group also employs reverse logistics to fetch used packaging from its stores for recycling at the DCs and implemented a returnable transit packaging system using plastic crates to reduce suppliers’ packaging needs • The Group continues its supply chain investment, learning from international systems and best practices, further leveraging economies of scale and working with suppliers to reduce inefficiencies in the system, improve inventory management and reduce mileage travelled.

21. Strategic Footprint Expansion contd. • Right technology enabling scalability, omni-channel capabilities and e-commerce • Technology and access to big data are key drivers in the ever-changing retail landscape. Consumers are increasing dependent on online functionality, especially through mobile devices. It is the Group’s intention to harness this trend, and offer customers maximum convenience through a seamless omni-channel shopping experience. • Integral to this, the Group’s key focus area of expanding its footprint is implementing the technology to allow for development and scalability, and ultimately an ecommerce platform. The Group is of the belief that the current bricks-and-mortar footprint has the potential to support ecommerce growth, providing a powerful network of physical stores and DCs across the country (and potentially the continent) for stock replenishment and click & collect services. • Noteworthy enhancements / investments in technology include: • SAP IS Retail roll-out –Almost complete, and not without teething problems, resulting in aligning the Shoprite Group’s entire retail landscape (stores and DCs) onto one technology platform providing a real time view of stock availability and line item profitability, amongst others. The intention is to provide the Group with better inventory accuracy and improved efficiencies, whilst enabling scalability, omni channel capabilities and e-commerce • Data analytics capability – Enhancements to allow for precision retailing, with real-time personalisation of scale and predictive analytics to guide all customer centric decision-making, such as product ranges per store, pricing, products to promote and layout of stores • First mobile platform launched –Allowing mobile-savvy customer to utilise a mobile wallet to transfer money via a mobile device and then cash out in stores

22. Maryla Masojada | Lead AnalystTarryn Butler | Senior Retail Analyst